Skip to main content

Business Accounting MANAGERIAL ACCOUNTING ACCESS CARD

Borrowed Capital: The money which is borrowed by a company from outsiders for a specified period of time with a promise to repay the amount with interest over it is known as borrowed capital, For example, long term debts, bonds payable, debentures, etc. Owned Capital: The money from the equity stockholders and reserves of the company is termed as owned capital. Owned capital is repaid only in case winding up of the company. To determine: What is meant by the term financial leverage? Solution: The use of borrowed capital in the capital structure of the business is termed as financial leverage. The purpose using borrowed capital is to increase the earning per share of the company by investing the borrowed funds in operating assets of the company. Financial leverage represents the relationship between the earnings before interest and tax and earnings per share of a company.

Borrowed Capital: The money which is borrowed by a company from outsiders for a specified period of time with a promise to repay the amount with interest over it is known as borrowed capital, For example, long term debts, bonds payable, debentures, etc. Owned Capital: The money from the equity stockholders and reserves of the company is termed as owned capital. Owned capital is repaid only in case winding up of the company. To determine: What is meant by the term financial leverage? Solution: The use of borrowed capital in the capital structure of the business is termed as financial leverage. The purpose using borrowed capital is to increase the earning per share of the company by investing the borrowed funds in operating assets of the company. Financial leverage represents the relationship between the earnings before interest and tax and earnings per share of a company.

MANAGERIAL ACCOUNTING ACCESS CARD

MANAGERIAL ACCOUNTING ACCESS CARD

17th Edition

ISBN: 9781266165276

Author: Garrison

Publisher: MCG

See similar textbooks

Videos

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

Blurred answer

Chapter 16, Problem 5Q

Chapter 16, Problem 7Q

Chapter 16 Solutions

MANAGERIAL ACCOUNTING ACCESS CARD

Ch. 16 - Prob. 1Q Ch. 16 - What is the basic purpose for examining trends in...Ch. 16 - Prob. 3Q Ch. 16 - Prob. 4Q Ch. 16 - Prob. 5Q Ch. 16 - Prob. 6Q Ch. 16 - Prob. 7Q Ch. 16 - Prob. 8Q Ch. 16 - A company seeking a line of credit at a bank was...Ch. 16 - Prob. 1F15

Knowledge Booster

Background pattern image

Accounting

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Financial leverage explained; Author: The Finance story teller;https://www.youtube.com/watch?v=GESzfA9odgE;License: Standard YouTube License, CC-BY